Why Gen Z bets big while boomers play it safe: A generational breakdown of market returns

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It's a Goldilocks moment for investors.

As the books are closed on September, the S&P 500 (^GSPC) has delivered a solid 20% return so far this year. Meanwhile, bonds are up a respectable 4.7%. And cash is yielding a similar percentage return — even after the Fed began cutting rates a few weeks ago.

But new research from Jack Manley at JPMorgan Asset Management uncovers hidden pitfalls, particularly for those entering their investment years during periods of high cash yields (much like the present). His findings suggest that all investors, regardless of generation, are heavily shaped by the market environment they grew up in.

Manley's methodology, rooted in demographic and behavioral analysis, assumes individuals begin investing 20 years after their generation's inception. For example, baby boomers started investing around 1966, Gen X in 1985, millennials in 2001, and Gen Z in 2017.

Over the decades, boomers have weathered all sorts of market turmoil, from the inflation crises of the 1970s to multiple tech booms later in life. With average annual stock returns around 10.2% and bond returns of 6.2%, their experience reflects a period of high growth and volatility.

As Manley explained in an episode of Stocks in Translation, “the Fed paid pathological attention” to the inflation crisis, and the entire experience had a profound effect in shaping boomers' cautious and diversified approach to investing — despite the strong returns.

For Generation X, the journey has been one of boom-bust cycles. But the older cohort of this group largely began investing amid a secular boom in markets. Entering adulthood during the 1980s, they witnessed the rise of tech but also faced brutal recessions, from the dot-com bubble to the 2008 financial crisis.

With returns hovering around 11.6% for stocks, their approach is cautious but optimistic. As Manley noted about the current market environment, “strong balance sheets are very important right now.” This may resonate with Gen X’s preference for financial resilience in uncertain times.

Millennials are the most educated generation, as measured by the percentage with bachelor's degrees or higher. But they have not fared as well in stock market returns, averaging around 8.0%, according to Manley.

When millennials came of investing age in 2001, the S&P 500 peaked, ushering in the dot-com bust. After stocks roared back amid a housing boom, the global financial crisis created a double top in the benchmark in 2007 that would not be eclipsed until 2013 — leaving millennial investors underwater for a dozen years.